View Full Version : Indicated Rate vs. Current Rate

03-24-2011, 11:01 PM
I'm a little confused between the two. Is Current rates what the insurer is currently charging, and indicated rate what the actuary is calculating using currently available loss data and this will be what the insurer would be charging going forward?


Vorian Atreides
03-24-2011, 11:14 PM
You're spot on with current rate.

Indicated rate is what the insurer should be charging. This can be determined either by the pure premium method (which ignores current rates) or by the loss ratio method (which indicates how much the current rates need to change to become adequate and not redundant).

Note that regulatory issues can also create a discrepancy between these two rates in addition to a change in your mix of business, a mismatch between expected experience and actual experience, and adverse selection.